DWA’s drawn to a studio

DreamWorks Animation needs a new distribution deal soon

As it seeks a distribution deal starting in 2013, DreamWorks Animation is finding that its success is both an asset and a hurdle: The company’s films have generated worldwide box office of $6.3 billion since 2006, yet its success encouraged other studios to create their own animation wings — which has proven to be a factor in its talks.

Sony Pictures is one of the major studios now looking at landing DWA’s slate, which includes six pics scheduled for release through 2014. Discussions also have taken place with Fox and Warner Bros.

But DWA will need to find a partner that doesn’t see it as a competitor with its own inhouse animation division. As the importance of global box office performance for tentpoles has increased, so has the competition for prime release slots.

In order to broker a deal, DWA is looking for a more favorable distribution fee of around 7% — it currently pays Par 8% for theatrical and homevideo releases, which proved a sticking point in their relationship.

After months of research conducted by former Disney distribution vet Chuck Viane, who was hired as a consultant last fall, DWA determined that self-distribution was too costly.

Outside of the financial terms, any deal DWA now brokers will be a rent-a-studio model, with DWA chief Jeffrey Katzenberg seeking a partner than can give his pics the best dates on the calendar while maintaining control over marketing and promotional deals for those releases (Variety, Oct. 11).

DWA’s $6.3 billion in worldwide B.O. from 13 films since 2006 grows to $10 billion once homevid revenue, pay TV sales and other revenue sources are factored in. Over the life of its seven-year deal with Paramount, DWA will have paid the studio over $700 million in distribution fees, or an average of some $50 million per pic once costs are covered.

At the same time, DWA has traditionally inked most of its own promotional partnerships and licensing deals for consumer products, live events and theme park attractions. Those include a long-running partnership with McDonald’s and Walmart, as well as newer deals with Royal Caribbean and Gaylord Resorts, and Nickelodeon and Cartoon Network for TV versions of its franchises, including “Madagascar,” “How to Train Your Dragon” and “Kung Fu Panda.”

DWA is left with few options for a studio partner.

Universal has Illumination Entertainment (“Despicable Me,” “The Lorax”) on the lot, and execs there worry that a deal with DWA would cause Chris Meledandri to consider another home.

Sony’s interest last week proved somewhat surprising since it operates Sony Pictures Animation, which has been found success with “The Smurfs” and “Cloudy With a Chance of Meatballs.” Adam Sandler’s “Hotel Transylvania” goes out next.

Yet Sony Pictures Animation prexy of production Michelle Raimo Kouyat is a former DWA exec, having exec produced “Puss in Boots.” Existing relationship should help Katzenberg negotiate better terms. And it helps that Sony has played well with others in the past, releasing MGM’s pics, for example.

With Katzenberg coming to a discussion as more of a renter than a co-investor, however, it’s unclear what kind of leverage he would have.Studios often argue that they simply cannot dip below 6%-8%, as that range barely covers the cost to unspool a picture worldwide. But investors, wary from the underperforming deals of the mid-2000s, want the number cut or at least subordinated before their own recoupment.

While the door into Paramount may not yet be shut, the studio announced the launch of its own toon division last year, giving it an upper hand in talks even though it has yet to release a follow-up to “Rango” or put another major project in production. Par is only interested in reupping if DWA agrees to a more favorable deal with a higher distribution fee.

Reports indicate that Katzenberg could still split up international and domestic distribution duties. The drawback to that approach, say some, is that a global release strategy is best streamlined when housed under one roof.

Katzenberg hopes to make a decision by this fall. He needs to. Dates for many of DWA’s pics have been set without a release strategy so far. Par’s last release with DWA will be November’s “Rise of the Guardians” unless they extend the pact.

DWA will need the global marketing muscle of a studio to promote its animated fare worldwide, especially as targeting family auds can be tricky in certain international territories. And a studio deal could make DWA more attractive to buyers should the publicly traded company decide to sell. Such pacts enable interested buyers to more clearly gauge the profit potential of a studio.